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Moody’s assigns Ba2 rating to Tata Power; outlook stable – EQ Mag Pro

Moody’s assigns Ba2 rating to Tata Power; outlook stable – EQ Mag Pro

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Singapore : Moody’s Investors Service has assigned a Ba2 corporate family rating to Tata Power Company Limited (The) (Tata Power).

The outlook is stable.

RATINGS RATIONALE

“The Ba2 corporate family rating assigned to Tata Power reflects the company’s (1) predictable cash flow from its regulated business, (2) exposure to thermal coal prices for its Mundra project and Indonesian coal mines, (3) growing renewable energy business, and (4) moderately high financial leverage,” says Abhishek Tyagi, a Moody’s Vice President and Senior Credit Officer.

“The rating also benefits from Tata Sons Ltd.’s (Tata Sons) 45.2% ownership in Tata Power and its track record of supporting the company,” adds Tyagi.

Tata Power’s Ba2 ratings include a one-notch uplift based on Moody’s assessment that the company will likely receive support from its major shareholder, Tata Sons, if needed.

Tata Power’s regulated operations in Mumbai and Delhi support the company’s consolidated financial profile. The recent acquisition of distribution companies in the state of Odisha has further increased the footprint of its regulated business. Tata Power’s regulated business contributed 57%-58% of the company’s EBITDA over the past two years, and Moody’s expects a similar contribution over the next two to three years.

Tata Power’s ratings consider the growth in its regulated and renewable energy businesses, which are more predictable and less volatile, and thus, reduce the impact of the company’s commodity price-driven businesses, including coal mines in Indonesia and the Mundra power project in India.

Tata Power has improved its leverage, as measured by cash flow from operations pre working capital after dividends to debt (CFO pre-WC — dividends /debt), from 5.0% in the year ended 31 March 2019 (fiscal 2019) to 10.2% in fiscal 2021. Moody’s expects Tata Power leverage to remain moderately high and its (CFO pre-WC — dividends)/debt to be in the range of 7.0%-8.5% over the next three years.

Tata Power’s credit profile considers its high carbon transition risk because a significant part of its generation business is reliant on coal-fired generation (69.5%). However, Tata Power’s commitment to not add any new coal-based capacity, phase out the existing ones once their power purchase agreements expire and significantly increase its renewable energy footprint provides clarity regarding its carbon-transition plan.

The Ba2 rating factors in moderate governance risk given the concentrated shareholding of Tata Sons. However, this risk is partially tempered by the experienced management team, which is further supported by experienced board members in the areas of corporate governance, business strategy, and operational and financial capabilities, among others.

RATIONALE FOR STABLE OUTLOOK

The stable outlook is based on Moody’s expectation that Tata Power’s underlying business and financial profile will remain steady and that Tata Sons will support the entity if required.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Tata Power’s rating could be upgraded if the company improves its credit metrics such that (CFO pre-WC — dividends)/debt is above 8% on a consistent basis.

Tata Power’s rating could be downgraded if (CFO pre-WC — dividend)/debt is below 5% on a sustained basis. The rating could also face downward pressure if Tata Power undertakes substantially debt-funded acquisitions that breach these metrics or significantly raise business risks for the company, or both.

The Tata Power Company Limited (TPC) is one of the largest private-sector power utilities in India, with an installed generation capacity of 12,808 megawatts as of September 2021. The company’s business operations include power generation from thermal, hydro, solar and wind sources, transmission and distribution. The company also owns coal mines in Indonesia and a license for coal mining in Russia.

Tata Sons Ltd. (Tata Sons) is the single-largest shareholder of TPC, with a 45.21% stake as of September 2021. TPC’s market capitalization was INR738 billion as of 3 November 2021.

Coastal Gujarat Private Limited (CGPL) is a significant part of the TPC group. CGPL’s installed capacity of 4.15 gigawatts (GW) accounts for about 32.4% of TPC’s total installed generation capacity.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating.

For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK.

Source : moodys

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Anand Gupta Editor - EQ Int'l Media Network